Economic losses due to natural disasters are worse than expected

The United Nations cautioned global businesses that economic losses due to natural disasters are at a high level, and the threat of profit loss will rise until risk assessment procedures become a core component of company strategies. 

"We have carried out a thorough review of disaster losses at a national level, and it is clear that direct losses from floods, earthquakes and drought have been underestimated by at least 50 percent," said Ban Ki-moon, secretary general of the UN. "So far this century, direct losses from disasters are in the range of $2.5 trillion." He added that risk management should receive more focus in business schools.

The UN 2013 Global Assessment Report on Disaster Risk Reduction analyzed urban development, agribusiness and coastal tourism and found that current business models in each sector continue to drive disaster risk. As the world continues to urbanize rapidly, the chances for economic losses are even higher. The report revealed executives were taking precautions to improve organizational adaptability and strengthen risk management strategies. In the private sector, risk analysis in strategic sourcing can reduce uncertainty, reduce costs and create value. 

Natural disasters directly impact business performance and can affect long-term competitiveness and sustainability. Companies suffer operational disruptions when crucial infrastructure is cut off. Executives in disaster-prone cities in the U.S. expressed losses of electricity, water supply and telecommunications as top concerns, according to the report. More than 90 percent of damage to these infrastructure networks occurs from natural disasters. Small and medium companies are at particularly high risk from natural disasters, and this could affect larger organizations that rely on them as suppliers.

Disaster risk is often ignored in economic forecasts and growth predictions. Regulators and investors are beginning to demand companies disclose hidden risks, especially natural disaster vulnerabilities.